Cabinet Office data showing recovery?

June 9, 2009
By Ken Worsley

Earlier today, the Cabinet Office released its Index of Business Conditions report for April. Data showed the Coincident Index moving up 1.0 points to 85.8 points, for the first increase seen in 11 months. Based on this information, the Cabinet Office upgraded the language in its monthly report for the first time in nine months (they were behind the curve) to say that signs of the economy ”ceasing to fall” are seen rather than that the economy is ”worsening.”

Media sources were quick to herald the results. The Nikkei announced that the 1.0 point rise in the coincident index was “adding to signs that the economy has been recovering from the worst recession since the end of World War II.”

Yet, it’s worth looking at a chart of the Coincident Index to see where it’s really at (click the image to enlarge). While there are certain signs of improvement, including increased exports and a lower number of bankruptcies in May, these stats are showing a similar curve - stil far behind where the economy stood at the end of last summer.

Few reports on the 1.0 point rise in the Coincident Index also mentioned that machine tool orders fell 79.3% In May, according to the Japan Machine Tool Builders’ Association. That was the twelfth consectutive fall in machine tool orders. Also little discussed was data showing that Japan’s current account surplus shrank 54.5% in April. My own estimate on April GDP is of it falling 0.3% from the previous month.

What remains to be seen is whether or not the Bank of Japan decides to upgrade its view of the economy in its report early next week. According to the Nikkei:

The central bank is expected to indicate in its monthly economic report for June that the economy is not worsening as fast as before. In its previous report, it said that “Japan’s economic conditions have been deteriorating.” However, many policy board members believe it is too soon to remove the word “deteriorating.”

The BOJ is expected to note improvements while emphasizing that domestic demand is one of the risk factors. It cannot rule out the possibility that the economy will take another nosedive due to declining employment and incomes.

Calling domestic demand a “risk factor” is sort of like saying the Marines have some guns. Sure, it’s true, but it’s a gross underestimation.

Will the BOJ upgarde its view of the economy for the second consecutive month? Most government reports were profoundly late in declaring that Japan’s economy was shrinking and that conditions were worsening. As predicted, it appears as though they are going to jump the gun on announcing a recovery.

Filed Under Cabinet Office, Economic Reports, Economics